Jack Townsend offers this blog on Federal Tax Crimes principally for tax professionals and tax students. It is not directed to lay readers -- such as persons who are potentially subject to civil and criminal tax or related consequences. LAY READERS SHOULD READ THE PAGE IN THE RIGHT HAND COLUMN TITLED LAY READER LIMITATIONS. Thank you.

Tuesday, July 6, 2010

Lawyer Pleads Guilty to Two Misdemeanor Counts of Failure to Pay

Various sources report that so-called celebrity lawyer, Mickey Sherman, has pled to two misdemeanor counts of failing to pay $400,000 in tax. (See the Tax Prof Blog for 7/5/10 here (with further links).) The counts to which he pled are under Section 7203 which provides in material part (words omitted for readability):

Any person required under this title to pay any tax who willfully fails to pay such tax shall be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution.

There is but a thin line, if any, between Section 7203 (willful failure to pay) and Section 7201 (tax evasion, in this context called evasion of payment). Any practitioner or law student can recite the differing elements, but in a case such as Sherman's, they appear esoteric. (Maybe Sherman intended to just fail to pay but not to evade?) He apparently did file returns for those years (otherwise, presumably, the charge would have been failure to file), but the reports do not state whether he reported the income and just did not pay which might indeed justify a willful failure to pay plea.

Of course, getting a misdemeanor plea sure beats a felony plea, particularly because Sherman wants to continue to practice law without interruption by disbarment or temporary suspension. And, of course, copping a misdemeanor plea does often cap the sentence under the Sentencing Guidelines which are now advisory. In this particular case, however, I am not sure they produce a cap on the Guidelines Sentencing range. My quick and dirty calculation of the Guidelines range with $400,000 tax loss and acceptance of responsibility shows an indicated sentencing range of 18-24 months. (A tax loss just over $400,000 would have produced a sentencing range of 24-30 months.) Assuming the $400,000 tax loss is correct (and won't be increased during the PSR process), then the sentence under the Guidelines is not affected by whether the plea is to the two misdemeanor counts or to two felony counts or even one felony evasion count. That is to say that the Guidelines do not differentiate between misdemeanor and felony counts, except that, for example, two misdemeanor counts cap the sentence at 2 years whereas two felony counts of evasion would cap the sentence at 10 years (well above the Guidelines range). Thus, for example, if the tax loss had been $10,000,000, negotiating the plea of two misdemeanor counts rather than two evasion counts would achieve a real and major benefit under the Guidelines. But here, with a tax loss of $400,000, the indicated range is the same and within the maximum permitted by the counts of conviction whether the plea is to a misdemeanor or a felony.

Of course, the Guidelines are now just advisory. But, in any event, the maximum period of incarceration is still capped by the two misdemeanor counts of conviction. He is likely to get even less than the range. But it is hard to imagine that he will get probation.

As to why DOJ Tax accepted a misdemeanor rather than a felony plea, perhaps that is what the evidence demanded. On the other hand, perhaps DOJ Tax acted from compassion for this defendant to give him a shot at continuing to practice without interruption.

3 comments:

So, if the Guideline sentence is determined by the tax loss, what difference does it make whether someone is charged with one versus six felony counts?

Actually that raises a second question, if the tax loss determines the sentence, why would anyone plead guilty to even to one count unless it was to a lower dollar amount of tax loss than they might be liable for?

As Mr. Sherman's law partner, Mr. Richichi, got 16 months and had his law license suspended (kinda academic as he was in prison...), it would seem strange if Mr. Sherman were to get less. Anything less for Mr. Sherman would be "odorous" and undermine tax administration, IMHO, in an era when government lapses are being closely scrutinized. So far, the IRS has escaped the kind of criticism leveled at the SEC, but a case like this would draws attention to administrative inconsistencies.

I will answer Anonymous' first question regarding the difference between pleading for one versus six felony counts. Often it will make no difference if the sentence would otherwise (either under the Guidelines or Booker) be equal to or less than the single felony count involved (in tax cases, either a 3 year or 5 year felony count). But, if the sentence would otherwise be greater than the single felony count permitted, it would be critical to achieve a plea to a single felony count.

The second question I don't really understand but I will stab in the dark. My experience is that one pleads because one has no practical choice. Then, it is simply a matter of mitigating the damage by pleading to a single count where the Government could or did charge multiple felony counts or, better still, getting the Government to accept a misdemeanor plea (although in terms of sentencing, there may be no difference between a felony count and one or two misdemeanor counts as in the Sherman case).

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